State: ETF won’t run dry in 2012

The pace of grants awarded by the Texas Emerging Technology Fund has dramatically declined, and its reserves have dwindled. Yet officials said the fund remains active behind the scenes, and that there’s plenty of capital to continue awarding grants to worthy startups.

The ETF has not announced any commercialization grants yet this year, nearly one-third into the calendar year. During 2011, it awarded just two commercialization grants worth a combined $3.5 million versus 31 grants in 2010 and 41 in 2009.

Chairwoman Terry Hazell said the $61 million that the ETF now has is plenty to finance startup companies this year because the fund only needs about $50 million a year. By this time next year, state lawmakers will be wrapping up their legislative session, which is where the fund must be replenished.

Several awards are scheduled to be announced later this month or early next month, Hazell said. Most of the grant applications are due this month for the next round of awards, she added.

But it’s unclear how much of the $61 million will be needed to finance existing ETF companies that the state already committed funding to, based on goals. For example, just seven months ago, $90 million of the $140 million the ETF claimed to have had was earmarked for previously awarded companies, officials said.

The ETF is especially useful to Central Texas companies that have come to use it to fill the capital gap that exists between seed funding and venture capital funding. Austin-based companies have collected the largest commercialization grants five of the last six years, according to the ETF.

State Rep. Jim Pitts, R-Waxahachie, chairman of the Appropriations Committee, couldn’t be reached to comment on the ETF’s future funding.

But state Sen. Mike Jackson, R-La Porte, chairman of the Senate Committee on Economic Development, said he’s not surprised at the sharp decline in grant awards as the state dealt with a budget crisis.

“I won’t be a member next session, but I hope the 83rd Legislature will see a way to keep this fund going,” he said. “I believe the grants serve a purpose in keeping Texas competitive in a high-tech economy.”

The ETF, which was established in 2005 by Gov. Rick Perry, has invested about $192 million in 133 early-stage companies. Perry’s office manages the fund that the Legislature typically replenishes with more than $100 million every two years. But state lawmakers didn’t do so last year amid budget cuts, allegations of political influence in the awarding of grants and critical reports by Texas Comptroller Susan Combs and the State Auditor’s Office.

The Auditors report, released in April 2011, recommended increased transparency with the ETF’s decision-making process. It’s unclear, however, whether any meaningful measures have been taken since then.

ETF grant applications are initially reviewed by one of seven Regional Centers of Innovation and Commercialization, or RCICs. Following RCIC approval, grants are reviewed by the ETF’s 17-member Advisory Committee.

The Central Texas RCIC set April 10 as its application deadline. Hazell said she didn’t know how many grant applications it received.

The Central Texas RCIC is managed by the Austin Chamber of Commerce. State officials have declined to publicly disclose the operating agreement between the state and the Chamber, a decision that was upheld in February by the state Attorney General’s office in response to a Freedom of Information Act request by the Austin Business Journal.

Hazell was appointed chairwoman of the ETF Advisory Committee in October 2011. In 2010, former Committee Chairman and CSID Corp. CEO William Morrow was reportedly asked to resign from the ETF after it was revealed that former ETF Director Alan Kirchhoff was given an equity stake in Morrow’s company. Kirchhoff resigned his position after the disclosure.

From July 2008 to June 2009, Hazell was a vice president of Austin-based Terapio Corp., which received a $1.7 million grant from the ETF in 2008. Her biography on the ETF website doesn’t list the Terapio position; it does, however, include her current position, which is director of RampCorp, a program administered by Texas State University geared toward training women entrepreneurs.

Andrew Wheat, research director of Austin-based Texans for Public Justice, said Texas lawmakers appeared to have lost interest in holding the ETF accountable because the program is largely viewed as a job creator.

In March, Taylor testified before the Legislature’s House Technology Committee urging more tech transfer, or licensing of technology developed at universities. He reportedly cited Stanford University and the Massachusetts Institute of Technology as operators of successful tech transfer programs.

California-based Stanford generated $65.4 million in licensing revenue during fiscal 2010, while MIT produced $69.2 million and 17 startup companies, according to the Illinois-based Association of University Technology Managers, or AUTM.

Neither California nor Massachusetts, however, operate state-sponsored seed-funding programs for private companies comparable to the ETF. Instead, venture capital firms and angel investors invest in the startup companies they determine will provide the best returns.

During fiscal 2010, the Texas A&M University System generated $8.6 million in licensing income and produced seven startups. The University of Texas System generated $38.3 million in licensing income and produced 33 startups, AUTM reported.

Perry’s failed presidential campaign will undermine his power during the upcoming legislative session, making it easier for ETF opponents to de-fund the program, said Matt Glazer, executive director of watchdog group Progress Texas.

“I think it’s going to be one of those strange bedfellow moments where people will agree that it’s created no jobs,” he said, “and there are better ways to spend taxpayer money.”